Thesis:

ICAD has a compelling risk/reward with 10X twelve-month upside potential and much higher longer-term. ICAD was a high-flying stock whose value has plunged 90%, creating a micro-cap trading for only 40% above net cash and an Enterprise Value / Revenues (EV/Revs) of 0.55x. This valuation seems amazingly low given ICAD’s status as a leading Autonomous Intelligence (AI) company, with commercial products focused on the detection and treatment of breast and other cancers ICAD has two families of products; 1) Cancer Detection (Detection), where ICAD has developed the first and only FDA approved and CE marked commercial AI software system that significantly improves the detection of breast cancer, while dramatically lowering the time and expense it takes to perform a mammography reading; 2) In Cancer Therapy (Therapy), ICAD has developed a novel radiation system (Xoft) that has significant advantages in treating certain types of cancers, versus traditional modalities. Xoft is FDA approved to treat any type of cancer, with new treatments currently being developed.

ICAD's Therapy business is currently in a sales/bidding process, partially due to incoming interest from multiple potential buyers. The announcement of a definitive sale agreement for this business should provide a big near-term catalyst for the stock, and is likely to be announced within the next 1-4 months. It’s possible that the Treatment business will be sold for significantly more than ICAD’s current enterprise value, although it’s currently unclear.

If ICAD executes its strategy of selling the Therapy business and growing the Detection division, the company would transition into a pure-play AI / Med-Tech / software recurring-revenue story, with a first-mover advantage in a rapidly growing end-market. We expect this transition would drive ICAD stock much higher. There is also significant downside protection if ICAD’s business stagnates, and the sale of the Therapy business is disappointing, because ICAD has about $20 million of net cash, which the company projects is enough to reach organic profitability. ICAD might also be acquired for a much higher price, due to thier exciting products, and $27 mil of commercial revenues in FY22. In any case, with some other AI related companies valued at EV/Revs of 15x, versus ICAD at 0.55x our estimated FY03 revenues, there are many ways for ICAD investors to win. You can also feel good about owning ICAD, because of their positive mission, which is one of the reasons we chose to invest in and write-up this company.

Why Does This Opportunity Exist?

ICAD is drastically undervalued for several reasons; 1) ICAD is an underfollowed and misunderstood company, because the stock is a micro-cap in the middle of a transitional phase with a complicated story; 2) The company has disappointed on revenue growth over the last couple of years. However, with a new management team and strategy in plce, and rapidly growing end-markets, I project revenue growth will inflect positively in the Detection business, with the potential for exponential growth for many years to come; and 3) I don’t believe new management has been speaking individually with investors since the new CEO (Dana Brown) was recently announced on 3/13/2023. The company has had a couple of conference calls since Ms. Brown was appointed CEO, in which she broadly presented ICAD's strategy and goals. However, I’ve tried several times to set up a call with ICAD’s management and have been told they are working on it. I assume they are not currently talking to investors because they are actively working through the sale of  the Therapy division.

The Company:

ICAD is a global AI medical technology and device company providing innovative cancer detection and therapy solutions. The Company reports in two operating segments: Cancer Detection (Detection) and Cancer Therapy (Therapy). When Ms. Brown was named CEO, she announced a new strategy for ICAD, which included initiating a formal sales process for the Therapy division, focusing on growing Detection, while significantly cutting expenses across the company. Going forward, ICAD plans to focus exclusively on its Detection business assuming the sale of Therapy is finalized. I think this strategy makes sense because the company only has enough capital to pursue one of these markets, and Detection is a much lower capital-intensive business, with much higher margins and rapid growth potential. Management has forecasted that ICAD’s Detection business will begin to grow meaningfully, driving the company to breakeven results by 4Q04. Management believes they have enough cash on their balance sheet to achieve profitability without raising additional capital. The huge wild-card is what price does ICAD get for the Therapy business (more on this later). According to the CEO the sales process was initiated by incoming interest and it seems to be going well, with multiple bidders in the due diligence process.

Cancer Detection Division:

The Detection Division includes ICAD’s AI breast suite of products, including breast cancer detection software, and automated breast density assessment and cancer risk assessment solutions for both 2D and 3D mammography. These products are designed to enhance breast cancer screening by improving clinicians’ clinical performance and efficiency, while reducing time and expense. Our research indicates ICAD has the leading position in AI used for breast cancer detection, and a strong first mover advantage. This first mover advantage is particularly important in AI, because ICAD’s AI model continues to improve with more data sets. Thus, a company with the first-mover advantage often has a perpetual and ever-increasing advantage due to their acquisition of significantly more and superior datasets to be used to improve their software algorithms versus the competition. I project the market size for the AI cancer detection for breast cancer alone could grow to reach $2 bil+ domestically by 2030, from almost nothing today. We believe within the next 5-10 years AI detection of breast cancer will likely improve enough to be able to replace the majority of radiologists, but at minimum will be used to analyze most mammograms along with a radiologist. With ICAD’s first-mover advantage and partnership with Google Health, they have the potential to take a meaningful percentage of this market, while also applying their AI to other forms of cancer.

While speaking about ICAD’s Detection business during the company’s 1Q23 conference call ICAD’s CEO stated,

“Our breast AI suite comprised of detection, density, and risk, maximizes the effectiveness of mammography. Our detection solution delivers up to 2x the clinical performance compared to leading competitors and is clinically proven to improve accuracy and efficiency for radiologists. In a recent study, our detection solution was shown to catch up to 23% more cancers that might have otherwise gone undetected. Our density solution not only meets the needs recently outlined by the FDA, but it has long been used worldwide to enhance patient care and personalized results. And our risk solution is up to 2.4x more accurate than traditional risk models. Our leading-edge AI portfolio is the only commercially available 360-degree solution clinically proven to assist clinicians in daily practice to detect more cancers, evaluate breast density and identify women at high risk of developing breast cancer. And with the recent U.S. Preventative Services Task Force guidelines, it's clear that our technology is more relevant than ever.”

Before digging further into Detection, the following background information will is useful. Breast cancer is the most common cancer in women worldwide, and the second most common cancer overall, with more than two million new cases diagnosed worldwide in 2021, according to the World Cancer Research Fund. It’s been estimated that about 40 million mammograms are performed in the US each year, and significantly more globally.

ICAD’s 10k states, “Although mammography is the most effective method for early detection of breast cancer, studies have shown that an estimated 20% or more of all breast cancers go undetected in the screening stage. The American Cancer Society estimates that, overall, screening mammograms do not find approximately one in five breast cancers. Observational errors are responsible for more than half of cancers missed, but products that utilize AI and computer-aided detection (“CAD”) have been proven to reduce the risk of observational errors in mammography. These cancer detection solutions can improve interpretation workflow by using sophisticated deep learning AI algorithms designed to rapidly and accurately analyze image data and mark suspicious areas in the image that may warrant more attention or highlight the possibility that the area may contain a subtle, but significant abnormality. While breast cancer has been the primary focus of iCAD’s detection technology, the underlying technology has potential applications to aid in the diagnosis of many additional types of cancer.”

Digital breast tomosynthesis (DBT) mammography (which produces 3D images) is rapidly replacing full-field digital mammography (FFDM) (which produces 2D images) in breast cancer screening, due to DBT’s improved clinical results in cancer detection and lower recall rate. DBT generates at least 50x the number of images versus the traditional FFDM, which creates a significant tailwind for ICAD’s Detection division, because of the additional Radiology resources and expense it takes to perform a DBT reading, which could be drastically reduced by using ICAD’s Detection products.

According to ICAD’s 10k, “The Company believes that approximately 80-85% of imaging centers in the United States use DBT. DBT greatly increases image data compared to FFDM, which creates significant workflow challenges for radiologists who face the additional workload and time required to accurately read all of the image data contained in DBT cases. Further, as incidence rates of cancer continue to rise, it is becoming increasingly important to find cancer sooner, reduce unnecessary recalls resulting from false positives, and optimize radiologist efficiency. iCAD’s technology addresses these challenges with a portfolio of AI solutions for cancer detection, breast density assessment, and short-term risk assessment for use with both 2D and 3D mammography, as well as colon polyp detection in Computed Tomography (“CT”) virtual colonography imaging to enhance both detection and diagnosis stages of the cancer care cycle.”

ICAD launched Profound AI, a DBT cancer detection and workflow solution built on deep learning AI, in the European Union (the EU) and Canada in 2016, and received FDA premarket approval in the United States in 2019. “ProFound AI version 3.0, which offers clinical and workflow improvements over prior versions, received FDA 510(k) clearance in March 2021 for commercial use in the United States for reading DBT exams. The Company’s 2D FFDM breast density solution received FDA 510(k) clearance in December 2013. In December 2018, the Company also developed a breast density assessment product for tomosynthesis that assesses breast density using 2D synthetic images that are generated from 3D tomosynthesis datasets. In July 2020, the Company received a CE mark in the European Economic Area (the EEA) for ProFound AI Risk, the world’s first image-based 2-year risk assessment model that assesses short-term breast cancer risk based primarily on information found in a 2D mammogram. In September 2020, ProFound AI Risk for 2D was introduced in the U.S. market as a decision support tool for radiologists. In September 2021, ProFound AI Risk for DBT was launched as a clinical decision support tool that provides an accurate short-term breast cancer risk estimation that is truly personalized for each woman, based only on a 2D or 3D mammogram.

Based on the number of DBT units relative to the total units left to be converted to DBT, and the associated large number of installation opportunities, the Company believes that its cancer detection, breast density assessment and risk assessment solutions for DBT may represent a significant growth opportunity in the United States. The Company believes that there is also a growth opportunity for 2D mammography and DBT AI solutions in international markets, both from the analog to digital conversion and as more countries adopt the practice of each exam being read by a single radiologist using AI, rather than the alternative practice of having two radiologists read each exam.

DBT was first FDA approved in the United States in 2010 and has been demonstrated to offer multiple advantages compared to 2D mammography… Initial studies have indicated that physicians using DBT have the ability to detect 41% more invasive cancers than those using 2D mammography, and also can reduce false-positive reads by up to 15%. While DBT has been shown to offer clinical benefits for screening mammography, it can also significantly increase radiologist interpretation time compared to 2D mammography. AI-based solutions can significantly improve the efficiency and efficacy of reading breast tomosynthesis cases by identifying and highlighting suspicious breast masses and calcifications.

ProFound AI for DBT is iCAD’s deep-learning algorithm specifically designed to detect malignant soft-tissue densities and calcifications in DBT exams by analyzing each DBT image, or slice. In early 2018, the Company completed a large multi-reader, multi-case crossover design clinical reader study, which showed that ProFound AI can increase radiologist clinical performance by improving radiologist sensitivity (detection of breast cancer) by an average of 8%, improve radiologist specificity by an average of 6.9% and reduce recall rates in non-cancer cases by an average of 7.2%. The reader study also showed that the product can reduce DBT reading times by an average of 52.7%. Results from this reader study were published in the peer-reviewed journal Radiology: Artificial Intelligence in July 2019. In May 2022, real world evidence presented at the Society of Breast Imaging (SBI/ACR) Breast Imaging Symposium showed ProFound AI improved radiologists’ screening performance, increased cancer detection rates and reduced abnormal interpretation rates.” 10k

In April 2023, Dr. Kathy Schilling presented a study to the European Congress of Radiology demonstrating how the use of ProFound AI helped nine dedicated breast radiologists at her facility find 23% more cancers without increasing the rate of recalls. Dr. Schilling noted in ICAD’s 4/15/23 press release,

“ProFound AI improved the performance of all nine dedicated breast radiologists, across the board. We read mammography every day, with decades of experience combined – we thought we were pretty good at it. But we were surprised to learn the ProFound AI made us even better. Now that I’ve seen the measurable improvements this technology offers, both to our team and our patients, I’ll never read another mammogram without it.”

“The October 2021 launch of the latest version of ProFound AI Risk was a significant achievement for iCAD, as this latest version offers the flexibility to work with 2D and 3D mammography images with high accuracy, showing over 10% improvement in the Area Under the Receiver Operating Characteristics Curve (AUC), a commonly used statistical measure of clinical accuracy... Designed for global application, the latest version of ProFound AI can (i) provide a one, two or three-year risk estimation, (ii) factor in ethnic and racial backgrounds in the assessment of the score, and (iii) factor in country specific screening guidelines and incident and mortality rates. In May 2022, a study published in Science Translational Medicine found ProFound AI Risk accurately determined women who were at a higher risk of developing breast cancer, with up to 2.4 times more accuracy than traditional lifetime risk models. In addition to superior accuracy, the image-based ProFound AI Risk solution offers a simpler approach to breast cancer risk assessment for providers, as there is no requirement to collect and manage patient history and lifestyle information, which can be costly and inaccurate.” 10k

In November 2022, ICAD and Google Health announced a strategic development and commercialization agreement which included the integration of Google Health’s AI and cloud technology into ICAD’s portfolio. The goal of the agreement is to further improve cancer detection performance and expand access to ICAD’s product suite to hundreds of millions more woman worldwide. This agreement is a very important component of the ICAD story. Google Health is known to have some of the best AI technology for the detection of breast cancer. The fact that Google chose to partner and license their technology to ICAD, likely means that ICAD is viewed by Google as the company most likely to be successful in this market, and that Google will not pursue the market independently. It seems Google plans to funnel all their technology and support in this area to only ICAD, which is worth a lot of value to ICAD, although the stock has been down significantly since the announcement. ICAD plans to launch its improved next-generation detection products on Google Cloud in 2024, which will dramatically increase their addressable market, allowing them to reach hundreds of millions of more potential global and domestic customers, and serve them at a lower cost. ICAD’s press release stated,

“Under the definitive agreement, Google has licensed its AI technology for breast cancer and personalized risk assessment to ICAD. ICAD will apply licensed technology to further improve its 3D and 2D AI algorithms and will commercialize developed products. “Joining forces with Google marks a historic milestone for our Company, as leveraging Google’s world-class AI and Cloud technology elevates the caliber of our market-leading breast AI technologies and may also accelerate adoption and expand access on a global scale,” according to ICAD’s CEO. “Google Health is our cross-company initiative to use technology to help everyone, everywhere be healthier – and collaborating with leading-edge companies like ICAD is a key part of this strategy,” said greg Corrado, Head of Health AI Google. “Google health’s AI tech could be used to make healthcare more available… Google Health working with ICAD is a great example of two organizations coming together to leverage our mutual strengths, technological capabilities, and resources to improve breast cancer screening worldwide.” See the full press release at iCAD and Google Health Ink Strategic Development and Commercialization Agreement (icadmed.com)” 

With or without the partnership with Google, ICAD’s detection AI products should improve performance meaningfully over time as the deep learning algorithms continually improve themselves though integrating additional data-sets. ICAD also does not need Google to launch a cloud product.

ICAD also has a suite of colon cancer AI detection products. The diagnosis advantage of these solutions is not yet as great as for breast cancer detection, but should improve meaningfully over time. According to ICAD’s 10K, “Colon cancer is the third most common cancer diagnosed globally, leading to almost one million deaths per year. CT is a well-established and widely used imaging technology that images cross-sectional “slices” of various parts of the human body. While the increased image quality and number of cross-sectional slices per scan offered by CT provides valuable diagnostic information, it adds to the challenge of managing and interpreting the large volume of data generated. CT Colonography (“CTC”) is a less invasive technique for imaging the colon when screening for cancer than a traditional colonoscopy. However, the process of reading a CTC exam can be lengthy and tedious as the interpreting physician is often required to traverse the entire length of the colon multiple times. CAD technology can play an important role in improving the accuracy and efficiency of reading CTC images by automatically identifying and highlighting polyps that can progress into cancer. VeraLook is the Company’s FDA-cleared solution designed to support detection of colonic polyps in conjunction with CTC. Field testing of the product was initiated in 2008. Results of the Company’s multi-reader clinical study demonstrated that the use of VeraLook improved reader sensitivity by 5.5% for patients with both small and large polyps, and slightly reduced specificity of readers by 2.5%. VeraLook was CE marked in 2009, received FDA 510(k) clearance in 2010 and is currently distributed with advanced visualization reading workstations and CTC applications manufactured by Canon Medical Systems and Philips Healthcare.

The Company’s current primary focus is on image analysis and workflow solutions leveraging AI in mammography, however, iCAD’s core technologies and product development capabilities can be applied to any imaging modality, including x-ray, CT, ultrasound, and Magnetic Resonance Imaging (“MRI”). Additionally, the Company could develop products that can be applied to screening and/or diagnosis of various additional cancer types such as prostate, lung, and brain cancers, as well as screening and/or diagnosis of disease related to visually differentiated tissue abnormalities. The Company continues to evaluate the adjacent or complementary opportunities in image analysis workflow solutions for future product development and commercialization possibilities.”

I encourage everyone who wants to dig deeper, to listen to some of ICAD’s webinars regarding the Detection business, where you can hear leading radiologists and experts tell you about the vast advantages using ICAD’s AI suite of products. The web address is Educational Webinars (icadmed.com)

Cancer Therapy Division:

 ICAD derived $14.4 mil in commercial revenues from their Therapy business in FY22, which has the potential to grow exponentially due to the multi-billion-dollar size of its target market. ICAD’s Therapy division has developed a medical treatment device which has significant performance and cost advantages for treating multiple types of cancer, within certain segments of the cancer population. ICAD’s primary Therapy product is a medical device called “The Xoft Axxent Electronic Brachytherapy System (Xoft System), which is a proprietary electronic brachytherapy platform designed to deliver isotope-free (non-radioactive) radiation treatment in virtually any clinical setting without the limitations of radionuclides. The Xoft System utilizes a miniaturized high dose rate, low energy X-ray source to apply the radiation dose directly to the size and shape of the cancerous area while sparing healthy tissue and organs. While delivering clinical dose rates similar to traditional radioactive systems, the electronic nature of the Xoft System technology provides a faster dose fall-off which lowers the radiation exposure outside of the targeted area and eliminates the need for dedicated shielded treatment environment such as that required with traditional isotope-based radiation therapy. As the Xoft System is relatively compact, it can easily be transported for use in virtually any clinical setting under radiation oncology supervision (including the operating room, where intraoperative radiation therapy (IORT) is delivered).” 10k

The Xoft system uses a type of radiation technique, called Electronic Brachytherapy, that involves placing radioactive sources inside the body, close to the cancerous tissue. The radioactive sources can be in the form of wires, small rods or other materials. The radiation is delivered directly to the tumor site and can be used alone or in combination with other cancer treatments. The Xoft system has similar effectiveness in treating multiple forms of cancer as surgery or traditional External Beam Radiation Therapy (EBRT), while having several benefits and additional applications versus EBRT and surgery. These benefits include; 1) a much faster treatment versus EBRT with significantly less toxicity; 2) Xoft results in no scaring or cosmetic issues versus surgery; 3) The Xoft system is small, portable, and only delivers a dose of direct internal radiation, so doesn’t require a specially equipped room or shielding, versus EBRT which is usually a larger stationary system, that requires the room to be equipped for radiation which emanates from the system during treatments; 4) The Xoft system has the potential to treat many more types of cancers with better results than EBRT, due to its ability to deliver direct radiation only to the specific area in need; 5) Using Xoft treatment is significantly cheaper than other types of cancer therapy or surgery. Net, net, the Xoft System simply seems like a better mousetrap for treating multiple types of cancer in certain segments of the cancer population and should thus have the potential to penetrate this multi-billion market in a meaningful way.  

The Xoft System is FDA-cleared, CE marked and licensed in an increasing number of countries for the treatment of cancer anywhere on the body. Xoft has significant clinical evidence supporting its efficacy as outlined below. Although the size of Xoft’s end-markets is in the multi-billions, ICAD hasn’t been able to penetrate them in a meaningful way yet, because they haven’t had the capital to properly launch, market, support, and invest in inventory for the product.

Since ICAD is in the process of selling the Therapy division, the most important question to ask ourselves is how much is it worth? My analysis indicates a wide range of potential value anywhere between $20-$120 mil, or $0.80-$4.75 per ICAD share. Therapy is currently in a competitive bidding process with multiple participants, and given the large size of the potential market, and the fact that Xoft is already FDA cleared with commercial revenue, the price could go very high, but anything could happen.

During ICAD’s 1Q03 conference call the CEO responded to a question regarding the status of the Therapy sale by stating,

“some adjectives right, to kind of describe the conversations. I will say they're plural. So that's good. We have multiple parties that we're in discussion with. The downside is it does take time to respond to all their questions. The parties are in what we're characterizing as Phase I due diligence, which lets them firm up their proposal to us.., their financial proposal... So, it's good. We've got multiple parties. They're at the same phase. Nothing is definitive yet... but I think we feel good about it. I think understanding the business and the potential for it with the customer base, we get to be on the front lines of hearing testimonials for that every day. So naturally, we're probably going to think that it can always be valued for more once somebody really understands the potential for it. But I think so far, we're pretty pleased. And everybody is coming in around the same numbers, the same dots, right, if you were to plot them on a graph. So, it's been consistent there.”

For background on the Xoft system, ICAD’s 10K States, “The Xoft System can be used to treat a wide and growing array of cancers, including breast cancer, non-melanoma skin cancer (NMSC), gynecological, recurrent glioblastoma and various other forms of brain cancer, and additional intraoperative radiotherapy (IORT) indications. Approximately 300,000 women are diagnosed with breast cancer every year in the United States. Currently, many early-stage breast cancer patients who are treated with radiation therapy follow a four-to-six-week daily protocol of traditional External Beam Radiation Therapy (EBRT), while a small portion are treated with brachytherapy. Breast cancer therapy is one of the primary indications for the Xoft system. Xoft aims to simplify radiation treatment for early-stage breast cancer patients by delivering a single ten to fifteen-minute precise dose of radiation directly to the lumpectomy cavity in a single, safe and effective procedure. Xoft may reduce the daily radiation treatment duration from weeks to days.

There are approximately 3.5 million cases of NMSC diagnosed annually in the United States. The Xoft System is a viable alternative treatment option for patients with lesions in cosmetically challenging locations (e.g., ear, nose, scalp, neck), locations that experience difficulties in healing (e.g., lower legs, upper chest, fragile skin), patients on anticoagulants, and patients who are anxious about surgery. The Xoft System has been used to treat more than 10,000 NMSC lesions. Clinical data published from 2015 to 2017 demonstrates promising local control and supports eBx as a convenient, effective, nonsurgical treatment option offering minimal toxicity and improved cosmetics for eligible NMSC patients.

There are approximately 50,000 new cases of endometrial cancer each year in the United States and more than 800,000 new cases worldwide. In 2017, the first-ever European analysis of using the Xoft System for endometrial and cervical cancer treatment was presented that demonstrated improved outcomes in acute toxicity in 29 endometrial or cervical cancer patients treated with the Xoft System from September 2015 to September 2016. Additional research showed that compared to an iridium isotope, the Xoft System delivered a lower dose of radiation to surrounding healthy organs at risk, such as the bladder and rectum.

Approximately 297,000 cases of brain and nervous system tumors are diagnosed worldwide per year. GBM is the most common and aggressive type of malignant primary brain tumor, with an estimated median survival of 10 to 12 months. The Company is continuing to develop clinical support for brain IORT, primarily in the GLIOX trial, an international multi-center trial designed to compare Xoft IORT plus Avastin® (bevacizumab) to the investigational arm of RTOG-1205 (EBRT plus bevacizumab). Led by principal investigator and world-renowned oncologist, the first patient in the GLIOX trial was treated in December 2021. In April 2022, the Company announced multiple patients have been treated in the GLIOX trial. Doctors at Cáceres University Hospital in Cáceres, Spain have also successfully treated multiple cases of recurrent GBM with the Xoft System, which were performed in preparation for the GLIOX trial, as well as brain metastases, recurrent rectal, and head and neck tumors. The Company also announced as of April 2022 clinicians at the Miguel Servet University Hospital in Zaragoza, Spain, have utilized Xoft IORT in their cancer treatment regimen for sarcomas and brain metastases, as well as more than 700 breast cancers and 200 gynecological cancers to date. Researchers hope the GLIOX trial will validate the intriguing initial results from a prospective two center comparative study at the European Medical Center (the “EMC”) in Moscow, Russia. The EMC study evaluated 15 patients with recurrent GBM who were treated with maximal safe resection and Xoft Brain IORT, and 15 patients with recurrent GBM treated with maximal safe resection and other modalities (control group), between June 2016 and June 2019. In October 2021, data supporting Xoft Brain IORT for the treatment of recurrent GBM were published with a subsequent erratum published in December 2021, in the peer-reviewed journal, Surgical Neurology International. The update reported that as of March 2021, patients treated in the EMC study with Xoft Brain IORT lived for up to 54 months after treatment without recurrence, whereas patients in the control group had a recurrence within 10 months and lived for up to 22.5 months after treatment. Researchers also found there were fewer complications, such as radionecrosis, in the IORT group. Radionecrosis refers to the breakdown of normal body tissue near the original tumor site after radiation therapy. One patient from the IORT group was still alive as of January 1, 2022, whereas none of the patients in the control group survived. Preliminary results from this study were presented in August 2021 at the American Association of Neurological Surgeons (AANS) 2021 annual scientific meeting. Additionally, electronic brachytherapy is appropriate for use in other IORT clinical settings where surgical resection is unable to completely eliminate all cancer cells.

The Company believes that IORT for prostate, pelvic, gastrointestinal, abdominal, spinal, and soft tissue sarcoma applications are potential markets given the minimal shielding requirements associated with this treatment modality. In September 2019, the Company unveiled new and updated advancements for the Xoft System at the American Society for Radiation Oncology (“ASTRO”) annual meeting. This included an advanced prototype for early-stage rectal cancers, and extended-length balloon applicators, available in 25 cm and 50 cm lengths, which offer added versatility and the potential for additional applications for the Xoft System in different areas of the body. Based on these additional clinical applications and the potential to scale the Xoft System in the future to address other indications for use, the Company believes the Xoft System offers unique flexibility and opportunities for growth.

 Additional Studies In 2016, Melinda Epstein, PhD, of Hoag Memorial Hospital Presbyterian in Newport Beach, California and co-authors published two clinical papers on their experience with the Xoft System for the treatment of early-stage breast cancer with IORT. In June 2016, the Annals of Surgical Oncology published data on 702 patients treated from June 2010 to January 2016, demonstrating a 1.7% recurrence rate. Further, less than 5% of patients had significant complications, indicating that IORT allows some women who cannot (or decline to) undergo whole breast radiation to consider breast-conserving therapy rather than mastectomy. In August 2016, The Breast Journal published 20-month mean follow-up data on 146 patients with pure ductal carcinoma in situ treated with IORT. The data showed a 2.1% recurrence rate with relatively few complications and again concluded that x-ray based IORT has the potential to be a promising treatment modality that may simplify the delivery of post-excision radiation therapy.

In 2017, researchers from Hoag Memorial Hospital Presbyterian published another clinical paper in the Annals of Surgical Oncology on their experience with the Xoft System in treating 204 early-stage breast cancers in a prospective, X-ray IORT trial from June 2010 to September 2013… The site’s low complication and recurrence rates support the cautious use and continued study of IORT in selected women with low-risk breast cancer. The Hoag Memorial Hospital Presbyterian IORT series is currently the largest single-facility IORT series with the Xoft System in the United States.

Also, in 2017, the Company announced results of a landmark study that demonstrated the economic benefits of IORT compared to EBRT in the treatment of early-stage breast cancer. The analysis demonstrated that IORT could result in direct cost savings for the U.S. healthcare system of more than $630 million over the lifetime of patients diagnosed annually with early-stage breast cancer, as well as could significantly benefit patient health by minimizing radiation exposure and offering a better quality of life. The results of the study were published in November 2017 in the peer-reviewed Cost Effectiveness and Resource Allocation and the study determined IORT to be the preferred method of treatment for early-stage breast cancer.

As the Company continues to focus on broadening global awareness and patient access to IORT, 2017 also brought meaningful progress in the area of international research. Physicians from Taiwan published a clinical paper in November 2017 in the peer-reviewed PLOS One journal. The multi-center study examined patient selection and the oncologic safety of IORT with the Xoft System for the management of early-stage breast cancer. From 2013 to 2015, 26 hospitals in Taiwan performed a total of 261 IORT procedures. With a mean follow-up of 15.6 months, locoregional recurrence was observed in 0.8% of patients. The study concluded that preliminary results of IORT in Taiwan showed it is well accepted by patients and clinicians.

Finally, in 2017, the Company announced that results of a matched-pair cohort study of 369 early-stage NMSC patients treated with the Xoft System or Mohs micrographic surgery showed that rates of recurrence of cancer were virtually identical at a mean follow-up of 3.4 years. Mohs micrographic surgery is accepted as the most effective technique for removing basal cell carcinoma and squamous cell carcinoma. The study results were published online in the peer-reviewed Journal of Contemporary Brachytherapy.

In 2018, several additional key pieces of clinical evidence supporting IORT with the Xoft System were published. With a mean follow-up of 55 months, outcomes published in The American Journal of Surgery showed that breast cancer recurrence rates of patients who were treated with IORT using the Xoft System and complied with adjuvant medical therapy were comparable to those seen in the cornerstone TARGIT-A study, which evaluated IORT but did not use the Xoft System. The study reviewed results of 184 patients with breast cancer from November 2011 to January 2016 completing Institutional Review Board (“IRB”)-approved IORT protocol. The recurrence rate for the 184 total IORT patients was 5.4 percent at a mean follow-up of 55 months; however, the recurrence rate was 2 percent lower for the patients who complied with adjuvant medical therapy. The difference in recurrence rates between the group complying with versus declining adjuvant medical therapy was statistically significant. To date, this study presents the most long-term research of IORT using the Xoft System published in a peer-reviewed journal.

Further in 2018, a long-term study of 1,000 tumors performed at Hoag Memorial Hospital Presbyterian and in the Annals of Surgical Oncology showed that IORT is a clinically effective, faster and easier alternative to whole breast radiation therapy following breast-conserving surgery for selected low-risk patients at a median follow-up of 36 months. To date, this study presents analysis of the largest series of early-stage breast cancers treated with IORT using the Xoft System published in a peer-reviewed journal.

In 2019, study results from the first cervical cancer cases for eight patients treated with the Xoft System at the Hospital Universitario Miguel Servet in Zaragoza, Spain were published in the Journal of Applied Clinical Medical Physics. Researchers found the treatment offered promising results at 1 month follow up, with no recurrences and low toxicity. The study concluded that electronic brachytherapy is a good alternative to treating cervical cancer in centers without access to conventional high-dose-rate interstitial brachytherapy.

Clinical data supporting the Xoft System for the treatment of various gynecological cancers, including cervical and uterine, were also presented in 2019 at the European Society for Radiotherapy and Oncology meeting by researchers from the Hospital Universitario Miguel Servet and the Jewish General Hospital in Montreal, Québec, Canada. A study conducted by researchers from the Hospital Universitario Miguel Servet concluded that electronic brachytherapy is an alternative to high dose-rate brachytherapy with a good rate of overall survival and progression free disease…

Preliminary results of the Company’s international, multi-center clinical trial in the Xoft System were unveiled during an oral presentation at the 60th ASTRO annual meeting on October 23, 2018. In the presentation, A.M. Nisar Syed, MD, detailed clinical techniques and outcomes of IORT using the Xoft System at the time of breast conserving surgery with findings based upon ASTRO suitability criteria. The trial enrolled 1,200 patients between May 2012 and July 2018 at 28 international and U.S.-based institutions. With a median follow up of 1.6 years, less than one percent of patients had cancer regrowth (ipsilateral recurrence) or developed new primary cancers in the other breast. Treatment was generally well tolerated with grade 3, 4 and 5 adverse events occurring in 37 patients. Mean treatment time was 10.5 minutes.

At the ASTRO Virtual Annual Meeting in October 2020, researchers presented new data supporting the Xoft System for the treatment of early-stage breast cancer and endometrial cancer. In a study involving 1,200 patients with early-stage breast cancer treated with the Xoft System from May 2012 to July 2018 across 27 institutions worldwide, researchers concluded that IORT with the Xoft System is safe, with low morbidity, low local recurrence and excellent cosmetic results.

In a study of 236 patients with endometrial cancer from September 2015 to May 2020, with a median follow up of 34 months, researchers concluded the Xoft System is a feasible alternative to HDR brachytherapy for the treatment of endometrial cancer that offers long-term benefits for patients, staff and the overall healthcare system.

Researchers from Miguel Servet University Hospital in Spain presented several studies supporting the Xoft System at the European Society for Radiotherapy & Oncology (ESTRO) virtual meeting in November 2020. In a study analyzing 193 patients from 2015 to 2019, where one group was treated with the Xoft System combined with external radiation and one group was treated with the Xoft System, researchers established electronic brachytherapy for endometrial cancer as a feasible alternative to HDR brachytherapy, equal in effectiveness to Iridium 192, with long-term benefits for patients. Researchers concluded that the Xoft System provided the same dosimetric coverage in the area of treatment as traditional brachytherapy with a marked reduction in dosage and organs at risk.”

On May 11, 2023, ICAD issued a press release which announced that “compelling new long-term real-world research confirms Xoft Skin Electronic Brachytherapy (eBx) is as safe and effective as Mohs surgery for the treatment of non-melanoma skin cancer (NMSC). In the longest-term study of Xoft Skin eBx to-date, published in the Journal of Contemporary Brachytherapy, 98.9% of patients remained recurrence-free at a median follow-up of 7.6 years.”

I encourage everyone who would like to dig deeper into ICAD’s Therapy business to watch the educational webinars on the Xoft System, where various experts in this field demonstrate and talk about the success they have had with this system for various applications. You can find the webinars at Educational Webinars (icadmed.com)

Valuation:

ICAD seems tremendously undervalued anyway we look at it with multiple ways to win. However, valuing ICAD is more art than science, but we will use a few techniques that will triangulate a valuation framework. Since the company is not generating a profit yet, historic Enterprise Vale/Revenues (EV/R) is a useful metric. Over the last 5 years ICAD’s EV/R has ranged from about 0.50-17.4x, with the current EV/FY24-projected-revenues around 0.50x assuming no sale of the Therapy division. ICAD is probably in the best position in recent history, yet the valuation is near all-time lows. If ICAD were to be valued at the upper end of its historic EV/R range at 17x, the stock would currently be in the $17 range. I can also justify a $17+ stock price using a discounted cash flow analysis, but we all know long-term revenue forecasts for an early-stage company are prone to significant inaccuracies. Further supporting ICAD’s upside potential is the fact that the stock peaked at about $21 in March 2021, when the market became excited about the company’s prospects. Although ICAD has no direct comps, I looked at a basket of AI related software companies, where the current average EV/R was in the 15x range, which also supports the view that ICAD could move up to these levels in an upside scenario.

However, ICAD will likely soon be transformed into a pure-play AI recurring-revenue software company once the Therapy business is sold. This begs the question, what is the Therapy business worth? My best guess is the therapy business is worth anywhere from 2-15x revenues steady-state revenues, which translated into $26-$195 mil, or $1-$7.80 per ICAD share. I know this valuation range is wide, but anything can happen in a competitive bidding process for a novel product with a multi-billion-dollar end-market. In any case, I think ICAD stock should go up from any sale in the $10+ mil level, because even at a $10 mil sale, ICAD would then have an EV of only $5 mil, and be trading at an EV/R for the remaining company (remainco) of 0.4x. At that point the company would be a pure-play AI software company with first mover advantage, and funding to go after multiple markets. Under this scenario If we give the remainco a 10-15x EV/R valuation, ICAD would be worth $5-$7.50. Combining the proceeds from a sale of Therapy with the expected value for the remainco, would result in a current valuation range for ICAD of $6-$15.30, with significant upside potential beyond this range over the mid/long-term if ICAD successfully implements its strategy. Even if the Therapy business went away for nothing, I estimate ICAD is currently worth $5-$7.50.

Income Statement:

Revenues from ICAD’s Detection segment have declined over the last year primarily due to ICAD switching to a license model, to increase recurring revenues and appeal to a broader number of customers. The company has also lacked management focus until recently when Mr. Brown was hired, and she subsequently hired several new executives across the company. Last quarter ICAD announced that they signed nine new licenses for Detection. Despite recent challenges the market for ICAD’s products is robust, and Ms. Brown expects revenues to begin to grow significantly within the next few quarters. This view is supported by my research, and the fact that ICAD will likely be rolling out a far superior product soon, combining its technology with Google Health, while enabling Detection products to run on Google Cloud, which will expand the addressable market substantially. Given the tremendous size of the ICAD’s end markets, and their very early stage of adoption, it’s possible at some point to see 50%+ type revenue growth for years to come. Ms. Brown has given preliminary guidance that she expects the company to achieve profitability by 4Q24. 

Revenues from Therapy declined in 1Q23 after growing 24% during FY22, primarily because the sales process for this business has caused customers to take a wait-and-see approach before buying new equipment, and ICAD has reduced headcount and marketing expenses as the process plays-out.

Cash Flow and Balance Sheet: The company finished 1Q23 with $19.6M in cash and no debt. Cash use during the quarter was $1.65M. Recent cost reduction actions taken have reduced the company’s annual cash burn by $4.9-$5.2M, with essentially none of the benefits having had time to hit in 1Q23. The company is targeting cash break-even by 4Q24.

Catalysts:

There are several catalysts for ICAD including the following; 1) potential sale of the Therapy segment for a good price; 2) potential announcement of meaningful partnerships or orders; 3) ICAD management beginning to speak to investors once the Therapy sales process in complete; 4) the launch of ICAD’s next generation Detection products on Google Cloud, combined with Google Health’s algorithms and technology; 5) reported growth in revenues for the Detection business; 6) a potential acquisition of ICAD from a larger player.

Risks:

There are several risks for ICAD which include the following: 1) The Therapy sale is disappointing. Although I would still believe ICAD is a buy if this were to occur because the company would still be vastly undervalued with additional catalyst to come; 2) An emerging competitor creates a better product, although our research indicates ICAD has a significant first mover advantage; 3) Management is unable to execute their strategy; 4) The market for ICAD’s products takes much longer to develop than we forecast. However, we forecast that in almost all reasonable downside scenarios ICAD would remain significantly undervalued.